Bank of Canada Cuts Key Rate to 0.75%

The Bank of Canada today announced that it is lowering its benchmark interest rate by a quarter percentage point to 0.75%. The rate has been at 1% since September 2010.

The benchmark interest rate influences other rates on consumer loans such as car loans and mortgage rates.

The cut is “in response to the recent sharp drop in oil prices”, the Bank said in a statement. Governor Stephen Poloz called the cut “insurance” against low oil prices and their harm to the Canadian economy.

The Bank said recent oil price collapse “will be negative for growth and underlying inflation in Canada”. However, the bank expects oil’s decline in the past six months will boost global economic growth, especially in the United States. It also believes oil prices over the medium term are likely to be higher.

The Bank is projecting real GDP growth will slow to about 1 1/2 per cent in the first half of 2015. The negative impact of lower oil prices will gradually be mitigated by a stronger U.S. economy, a weaker Canadian dollar, and the Bank’s monetary policy response. The Bank expects Canada’s economy to gradually strengthen in the second half of this year, with real GDP growth averaging 2.1 per cent in 2015 and 2.4 per cent in 2016.

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Antonia Yan

Antonia Yan

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